Mossack Fonseca is just one of many firms who main raison d’être is to facilitate what some call “legitimate tax avoidance“. In the process firms like Mossack Fonseca may be facilitating tax evasion and money laundering. But their bread and butter is legal tax avoidance.
These firms are not the only facilitators of tax avoidance. It is our governments that make the laws that give so many opportunities for the rich to avoid their public obligations. Many governments do it openly, and these governments are not generally thought of as detrimenting their nations’ reputations; Ireland and Switzerland are among the most well-known for their corporate tax subsidies (Ireland) and secrecy (Switzerland). New Zealand – especially the Realm of New Zealand (yes, New Zealand has an empire) – is another of these polities.
(For a look at Ireland’s rorting of the global system, see my Ireland’s Economic Growth?, where I ponder how Ireland’s GDP managed to increase from 0.16% to 0.26% of world GDP in the 10 years to 2002. And guess what is driving Ireland’s present 9.2 percent growth rate? Large corporate tax subsidies to multinational businesses are good, for the moment, for the business of Ireland Inc.)
Many in the New Zealand mainstream media have been wondering, why the fuss if New Zealand laws facilitate rich foreigners to avoid their fiscal obligations in their own countries. Why is that our concern, they ask?
Imagine if we allow First Class and Business Class airline passengers to place undeclared and unscreened cargo in the rear cargo hold, as a privilege of their status. A few near-bankrupt airlines just might consider that this practice would give them a competitive advantage over their rivals, especially if they maintain the practice as an open secret. The privileged passengers might reason that the practice is OK for them because any damage to the aircraft that might take place would not affect them because the problem would be at the other end of the aircraft, next to the cheap seats. (Being privileged is not the same as being intelligent! See this famous David Low cartoon Phew, that’s a Nasty Leak, from 1932.)
Non-payment of taxes by the rich is severely detrimental to the global economy. New Zealand is a part of the global economy, so international tax-avoidance detriments us. If we encourage others to legally cheat on their own people, and encourage our people to help them cheat on their people, then the global market system fails (or, at minimum, becomes inefficient and unstable). When systemic failure happens, we all stand to lose: the aiders and abettors, the innocent bystanders who pay their taxes but also look the other way, and the billions of foreign victims whom too many of us care too little about.